Growth fears in the US as Retail Sales slumped in December

GBP

Another solid day for the UK currency on Wednesday saw Sterling appreciate by 0.2% against the Dollar.

Just the one major data release out in the UK yesterday saw the Conference Board’s measure of overall economic activity decline for the third consecutive month. The Leading Economic Index, which covers components including consumer confidence and productivity, fell by 0.3% in November with the Conference Board suggesting that economic activity will continue to improve, although it is unlikely to accelerate in the near term. Mark Carney was grilled by the Treasury Select Committee a day after inflation reached a record low. The BoE Governor reiterated the fall in oil price is a “net positive” for the UK economy, but a “negative shock” for Scotland, while claiming the verdict in the upcoming Greek election poses little threat to the UK’s financial stability.

A quiet end to the week expected with no data out in the UK during London trading today or on Friday.

EUR

Weak US data and a slump in the Dollar was enough for the Euro to finish a volatile day 0.1% up versus greenback, despite dropping below its launch level for the first time in nine years.

On Wednesday the European Court of Justice gave an interim ruling that broadly favoured the ECB in its attempt to save the struggling Eurozone. Pedro Cruz Villalon, Advocate General at the ECJ, advised that the proposed bond-buying scheme was compatible with EU treaties and in effect gave the green light to Mario Draghi’s proposed quantitative easing measures. The final legal hurdle now appears to have been cleared and we expect a significant announcement at the ECB meeting next week, which could see the central bank pump as much as €1trillion into the stagnant economy. Away from the main announcement, Industrial Production unexpectedly rose in November by 0.2% after a flat reading was expected. A 1.9% increase in the manufacture of durable and consumer goods more than offset the 0.9% decline in energy output, leading to a better than forecast annualised reading of -0.4%.

Fallout from yesterday’s decision is likely to continue into today, while a speech by Bundesbank President Jens Weidmann at 4.15pm London time could cause some market volatility.

USD

A drop in retail sales caused the Dollar to depreciate sharply on Wednesday afternoon, with the greenback 0.2% down against its major peers.

Retail sales in the US declined sharply over the Christmas period, falling by 0.9% in December, the largest slump since January last year. Sales of electronics and clothing were among nine of the thirteen major categories that experienced a drop in receipts last month, which could potentially prompt US economists to revise growth forecasts for the coming year. Similarly, retail sales excluding autos fell by 1%, marking its largest decline since May 2010. The data was significantly weaker than economists had anticipated and yielded an annual increase in retail sales of just 4% for all of 2014, the smallest yearly climb since the recession came to an end in 2009. Elsewhere, business inventories rose, as expected, by 0.2% in November, while the import and export price indexes both yielded declines. Significantly, mortgage applications soared in the first full week of the year by 49%, the highest climb in six years, as consumers raced to lock in mortgage rates that are at their lowest level in almost 20 months.

A number of potentially significant data releases due out in the US this afternoon. Jobless claims at 1.30pm UK time, followed by producer price data expected to cause the most movement in the Dollar today.

Rest of the world

Poland’s central bank left its interest rate at a record low 2% for a third consecutive month. Russia announced plans to convert some of its foreign-currency holdings into Rubles, while the Canadian Dollar touched its weakest position since 2009 amid continuing concerns that the slump in crude oil will dampen economic growth.